GBP/AUD Forecast: Pound to Australian Dollar Exchange Rate up after RBA Governor Pours Cold Water on Hike Speculation

March 10, 2021 – Written by James Fuller

The Pound continues to climb, and the British Pound to Australian Dollar (GBP/AUD) exchange rate is benefitting from weakness in the Australian Dollar today. Investors are selling the Australian Dollar after a solidly dovish tone from Reserve Bank of Australia (RBA) Governor Philip Lowe in a recent speech, while Sterling keeps benefitting from the market’s broad optimism that Britain will recover from the coronavirus pandemic.

Strength in both currencies has led to GBP/AUD volatility in recent weeks. Last week saw GBP/AUD tumble from the level of 1.8069 to briefly fall as low as 1.78 before rebounding and closing the week just below the level of 1.80.

This week’s movement has been narrower as markets calm from last week’s movements, but the pair is generally trending with an upside bias, edging nearer to the 2021 highs seen at the end of February. At the time of writing on Wednesday, GBP/AUD trends in the region of 1.8037.

Pound Sterling (GBP) Exchange Rates Continue to Benefit from Vaccine Hopes

The Pound’s rally continues this week. Market optimism that Britain could be one of the first major economies to recover from the coronavirus pandemic has only gotten more solid thanks to optimistic comments from economists.

Essentially, investors have had little reason to sell the Pound from its best levels in profit-taking, even if it is overbought. This is because Britain’s recovery outlook, at least for now, has been continuing to improve.

According to Analysts at ING:

‘While the pace of the GBP appreciation may now slow, we argue that compared to prior years (defined by Brexit risk premium), we should get used to periods of frequent overshoots into overvalued GBP territory, given the vaccination dividend sterling is benefiting from,’

A lack of particularly strong UK data in recent sessions has not dissuaded investors from continuing to buy Sterling.

With parts of Britain’s economy beginning to gradually reopen, infections rates lower and vaccination rollout in full swing, Britain’s recovery is gaining momentum and analysts believe more momentum is likely.

Australian Dollar (AUD) Exchange Rates Knocked as RBA Governor Lowe Douses Rate Hike Speculation

Due to a combination of strong Australian data and the Reserve Bank of Australia’s (RBA) recent signals that further monetary policy loosening was unlikely, markets had begun to speculate that the bank could become more hawkish soon.

Market optimism about some recovery from the coronavirus pandemic by the end of the year led to optimism that the RBA could tighten monetary policy to reflect a recovering economy.

This was part of the Australian Dollar’s recent strength. AUD has also been climbing due to general market optimism about a global recovery, causing a risk-on movement recently.

However, comments this week from Reserve Bank of Australia Governor Philip Lowe poured cold water on this speculation for any interest rate hike any time soon. In a speech, he said that interest rates were unlikely to be hiked at all before 2024 at the earliest.

According to Su-Lin Ong, Head of Australian and New Zealand Fixed Income Strategy at RBC Capital Markets:

‘The underlying tone of this speech was unambiguously dovish,

In particular, the discussion around maximum employment, challenges to wage growth and achieving sustained within-target inflation reinforces the likelihood of a prolonged period of low rates and even more QE beyond the current two programs,’

GBP/AUD Exchange Rate Forecast: Markets Await Coronavirus News and UK Data

Tomorrow will see the publication of Australia’s consumer inflation expectations report, and HIA’s new home sales data.

These ecostats are unlikely to be too influential, so Pound to Australian Dollar exchange rate investors will likely focus on coronavirus developments or await Friday’s key UK ecostats.

Friday will see a slew of key UK datasets from January published. This includes trade balance, manufacturing and industrial production, and growth rate data.

If Britain’s January growth rate was stronger than expected, it could make markets even more optimistic about Britain’s potential to recover from the coronavirus pandemic.

However, weaker than expected UK data could serve as a wake up call to the recently bullish Pound, and may cause the currency’s recent rally to fade.

Shifts in market sentiment, driven by central bank comments or coronavirus developments, could also influence the Pound to Australian Dollar exchange rate.

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